Posts Tagged ‘Hidden costs of ERP’

hidden costs cloudIn our prior post we reprised some comments from a white paper written by Compare Business Products on some of the ‘hidden costs’ to be found in ERP solutions, focusing in that post on the ‘on-premise’ implementation.  But cloud ERP also comes fraught with its own, sometimes more hidden (or confusing) costs, a few of which we’ll note today in this second of a two-part post.

Cumulative Costs.  Often, lower front-end costs are a seductive pitch to buyers, providing a strong incentive (“Look at all the hardware costs you’ll save!”).  But it’s important to do at least a five-year calculation of the full costs in order get a more valid comparison (to ‘on-premise’).  It’s important to check for licensing policies, changes in policies, what happens if the provider fails, who owns the data (you do!) and where does it reside, what non-ERP costs also need to be considered, etc.  After all, that hardware, operating system, network, services, office suite, tools and all the rest aren’t free – you’re just paying for them in monthly installments.

Premium Features.  We’ll quote CBP directly here: “All solutions will have a list of ‘premium features’ that will be billed for separately. These could be the very features a business needs and therefore they will add to the basic subscription. Careful research and investigation is required before signing a contract.”

Customization.  Cloud systems can only be customized to a limited extent.  And sometimes, hardly at all.  Most will be confined to “look and feel” characteristics such as the user interface (UI) and reports.  Fundamental changes to the system are usually not possible – after all, sharing your software across many, many users is how cloud systems get to become cheap in the first place.  It’s truly a “one size (must) fit all” scenario.

Data Storage Costs.  Costs vary widely here, even today.  Types of storage, service levels and frequency of backups all need to be considered.  Think about not only today, but tomorrow’s needs, and five years from now.

Service Level Agreements.  SLAs are a standard part of any cloud agreement.  It’s important to understand the liabilities carried by the cloud service provider.  As CPB notes in their white paper “In most cases, the service provider will expressly insert a disclaimer that will ensure that there is no liability for any disruption of service or consequential losses and that the service provider’s liability will be restricted to the cost of rental for the duration that the service was not available. Businesses need to be aware of this, and make adequate provisions to ensure they stay protected.”

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hidden costsIt’s easy for buyers of ERP systems to overlook (and for sellers to undersell) some of the so-called ‘hidden costs’ of a system implementation.  A recent article from Compare Business Products reminds us of a few of those costs that buyers should be aware of – in both on-premise and cloud solutions.  We’ll reprise a few of their comments in our next two posts, beginning here with on-premise systems.

Training.  Most companies we find commit two mistakes here: first, they underestimate the implications of the changes they are making.  It’s not just learning the new software, it’s often about learning new was to do peoples’ jobs.  Secondly, companies too often think they can shave costs from a project by skimping on training.  The ensuing employee frustration, coupled with the additional errors that usually occur later – often requiring expensive correction and further training – make the case for ensuring that your employees themselves feel they were adequately trained.

Consulting.  It’s not just showing how to press a few keys to get the results you’re after.  Consultant costs are linked to training needs, the article notes.  The hard part comes from shoehorning the software into the way that you work.  But without that, you have exactly the opposite, and that’s usually a recipe for disaster.  It takes experienced and knowledgeable consultants to understand how your current processes flow, how they could flow better, and how to allow the software to help you get there.  Budget accordingly.

Customization.  Most companies, and good consultants, advise trying your best to use the software out-of-the-box, at least initially.  But the reality, studies show, is that a very high percentage of systems are ultimately modified or customized to match the user’s requirements – and that’s a good thing!  It ensures that the software works the way you do, and that you take advantage (by capturing in your process flows and your software) of the competitive advantages that make you better than your competitors and/or improve your operating margins.  But here again, plan carefully and budget accordingly.  Good consultants will step you through this carefully and thoughtfully, not prescribe numerous modifications haphazardly, and then help you design the right ‘user story’ to ensure you’re doing the right mod for the right reason at the right investment value.

Integration & Testing.  Systems usually need to be integrated with other systems to be fully effective.  And not only does the consultant need to test things like integration, new modifications and expected workflows, but you do too!  This takes time from your people, and reduces short-term productivity.  And it’s usually a two-steps-up-one-step-back process.

Data Cleansing.  If you’re integrating to legacy systems, or porting forward a lot of old data to the new system, this obviously increases costs (sometimes by a lot) and must be accounted for.  As the paper’s authors note, “Invariably, businesses will underestimate the costs of cleaning and managing their data before it can be used by the ERP.”  We would tend to agree based on experience.

These are a few of areas where businesses can underestimate the full costs of a successful (important word there) implementation.  But forewarned is forearmed, right?

In our next post, we’ll take a quick look at the corresponding hidden costs to be found in cloud implementations.  Stay tuned…



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